In Moods and Markets, Peter Atwater does a remarkable job of revealing to the reader the unquantifiable dynamics behind the behavior of asset classes. When the seemingly overwhelming amount of economic and financial data available in the internet age fails to adequately explain the movement of markets, the book offers the ‘missing link’ in an easy-to-read analysis of how our emotions affect our investment decisions and how investors migrate between ‘fear’ and ‘greed.’ Moods and Markets creates that ‘aha’ moment which brings a new level of clarity to the seemingly impenetrable web of forces shaping today’s investment landscape.
The first chapter of the book focuses on what social mood is, and more importantly, what it is not. Too often we associate markets with emotion, and I believe (admittedly now with costly hindsight) being able to distinguish mood and its characteristics from emotion creates an enormous advantage for investors. I then look specifically at how mood affects the decisions we make. In that process I introduce you to something I call Horizon Preference, a very simple framework I developed that links what I believe are our “natural” decisions to a specific level of mood. As market tops and bottoms are of particular interest and very relevant to investors, I also look closely at those moments’ consistent specific behavioral attributes. Along the way, I do the following:
- Incorporate examples of specific mood-based decisions from different businesses and industries
- Walk through the housing bubble and the role changes in mood played there and how changes in mood are likely to affect higher education in the future
- Look at the connection between social mood and corporate accounting
I know the last section might not sound incredibly exciting, but for investors, knowing how social mood and accounting tie together is critical. Enron and WorldCom didn’t happen by accident; nor did Sarbanes-Oxley. Finally, I turn my attention to where I think we are today, and I offer where I think we are headed. To be clear up front, though, this is not one of those Dow 50,000 or Dow 5,000 books. Whether up or down from here, by the time you have finished reading this book, you should be able to make your own decision on the direction of the market by better understanding the significance of what you see in the world around you every day. To help, throughout the book I have tried to be generous with charts and sidebars that offer recent real-life examples. Hopefully, these will spur you to consider other examples from your own business or industry.
- Understanding Social Mood
- Horizon Preference: How Mood Affects Our Decision Making
- Market Peaks and All the Red Flags They Wave
- A Social Mood Journey Back Through the Housing Bubble
- Is Higher Education a Bubble?
- Signs of a Bottom in Social Mood
- Cooking the Books: Corporate Earnings and Social Mood
- Social Mood and the Markets Today: So Where Are We?
- Using Horizon Preference No Matter Your Long-Term View